Oil prices were also pushed down by worries about demand in China after Beijing failed to announce any new stimulus for its stuttering economy at a weekend briefing.

Major stock markets were mostly lower with declines in Shanghai, Hong Kong and London, while Frankfurt rose on a report showing reviving investor confidence.

Key US oil contract, West Texas Intermediate, tumbled more than five percent to $69.71 per barrel.

European benchmark Brent North Sea crude also slumped by a similar amount to $73.34, before clawing back some losses.

Prices slid following a Washington Post report that Netanyahu had pledged to target Iran's military rather than its crude and nuclear sector.

Iran's missile attacks on Israel earlier this month sent crude prices soaring on fears that retaliatory strikes would disrupt oil supplies.

Tuesday's news has "alleviated some of that supply concern", said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

"With the geopolitical risk-premium falling, prices are once again being led by the struggling demand picture," he added.

The International Energy Agency on Tuesday said global oil markets remain "adequately" supplied.

In its monthly update, the Paris-based agency said the end of a Libyan oil blockade, weaker demand and relatively modest output losses from hurricanes in the US Gulf Coast "have helped to steady markets".

- China woes -

Adding to the downward pressure on oil prices is concern that China, the world's largest importer of crude, is failing to reignite its ailing economy.

Investors have been left disappointed by a lack of details from China's finance minister Lan Fo'an over the size and scale of economic-stimulus measures aimed at kickstarting growth in the world's second-largest economy.

Weaker-than-expected Chinese trade and inflation data for September further highlighted the need for economic help.

"Everywhere you look, China is in desperate need for fiscal support, with very weak domestic demand alongside an economy facing deflationary pressures and softer global demand," said Rodrigo Catril, a senior strategist at National Australia Bank.

Hong Kong's stock market closed down nearly four percent Tuesday and Shanghai shed 2.5 percent, though there were gains in Tokyo as traders there returned from a three-day weekend.

London was down around midday despite official data showing that Britain's unemployment and wage growth had eased, boosting analyst expectations that the Bank of England would resume cutting interest rates next month.

Paris stocks dropped while Frankfurt rose ahead of an expected interest-rate cut Thursday from the European Central Bank as anxiety about inflation in the eurozone fades and concerns over sluggish growth mount.

German investor confidence rose more than expected in October, a survey showed Tuesday, as the prospect of lower interest rates provided a glimmer of hope to businesses in Europe's largest economy.

There were further record closes for the Dow and S&P 500 on Wall Street Monday, as the third-quarter reporting season gets underway.

- Key figures around 1030 GMT -

West Texas Intermediate: DOWN 5.1 percent at $70.04 per barrel

Brent North Sea Crude: DOWN 4.9 percent at $73.66 per barrel

London - FTSE 100: DOWN 0.6 percent at 8,246.51 points

Paris - CAC 40: DOWN 0.8 percent at 7,542.68

Frankfurt - DAX: UP 0.3 percent at 19,557.50

Hong Kong - Hang Seng Index: DOWN 3.7 percent at 20,318.79 (close)

Shanghai - Composite: DOWN 2.5 percent at 3,201.29 (close)

Tokyo - Nikkei 225: UP 0.8 percent at 39,910.55 (close)

New York - Dow: UP 0.5 percent at 43,065.22 points (close)

Euro/dollar: DOWN at $1.0909 from $1.0911 on Monday

Pound/dollar: UP at $1.3088 from $1.3060

Dollar/yen: DOWN at 149.07 yen from 149.74 yen

Euro/pound: DOWN at 83.00 pence from 83.51 pence

dan-ajb/bcp/gv

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INDEX CORP.